Editors note: Originally published October 9, 2015 - madhedgefundtrader.com
With major moves across the entire commodity specs this week, it's time to take another look at emerging markets (EEM).
The worst performing asset class in the world for the past four years, emerging stock markets have certainly been taken out to the woodshed for a severe thrashing, just like my grandfather used to do when he caught me shooting at the local stop signs with my .22.
I am not inclined to chase the rally here. But it is safe to say that we can't keep ignoring these potentially fast growing asset class forever.
I managed to catch a few comments in the distinct northern accent of Jim O'Neil, the fabled analyst who invented the 'BRIC' term, and who was later kicked upstairs to the chairman's seat at Goldman Sachs International (GS) in London.
Jim thinks that it is still the early days for the space, and that these countries have another ten years of high growth ahead of them. As I have been carefully monitoring emerging markets since the inception of this letter in 2008, this is music to my ears.
By 2018 the combined GDP of the BRIC's; Brazil (EWZ), Russia (RSX), India (PIN), and China (FXI), will match that of the US. China alone will reach two thirds of the American figure for gross domestic product.
All that's required is for China to maintain a virile 5% annual growth rate for eight more years, while the US plods along at an arthritic 2% rate. China's most recent quarterly growth rate came in at a blistering 7.0%.
"BRIC" almost became the 'RIC' when O'Neil was formulating his strategy a decade ago. Conservative Brazilian businessmen were convinced that the new elected Luiz Ignacio Lula da Silva would wreck the country with his socialist ways.
He ignored them and Brazil became the top performing market of the G-20 since 2000. An independent central bank that adopted a strategy of inflation targeting was transformative.
This is not to say that you should rush out and load up on emerging markets tomorrow, as they are still being weighed down by the prospect of higher American interest rates and weak commodity prices.
American big cap stocks are the flavor of the day, and as long as this is the case, emerging markets will continue to blend in with the wallpaper.
Still, with growth rates triple or quadruple our own, they will not stay "resting" for long.
